What is a cooperative, or "co-op?"
You may have heard agents or friends suggest that you avoid buying
into a co-op, but do you or the person who "warned you"
truly know how a cooperative differs from a condominium? Not many
people know the difference. The
Watergate (you may have heard of that), The Westchester near the
National Cathedral in Northwest D.C., Tiber Island and Harbour Square
on the increasingly popular Southwest Waterfront, among others,
are cooperatives, and are also some
of the most desirable places in which to live in the D.C. area.

Daily life in a cooperative is essentially the same as in a condominium.
The main difference is that in a condominium, one owns actual real
estate, whereas in a cooperative, ownership is held via shares of
stock in the corporation that owns the entire building. Not all
cooperatives are created equal, however! Each has their own rules
which define them. Some may allow owners (shareholders) to rent
out their unit, while others may have restrictions against rentals.
Some co-ops may allow pets, others may not.

"BUT
CO-OP FEES ARE SO HIGH!",
you may have heard. Not true! Another important distinction to understand
is that typically most cooperatives have real estate taxes included
in their "fees", whereas condominium owners pay their
own real estate taxes. Therefore, when comparing fees, this difference
must be taken into account. Also, many cooperatives have common
metering of utilities, and therefore utilities may be included in
the fee. Some Co-ops also may have an underlying or "blanket"
mortgage which may have been secured for improvements. This mortgage
payment also is often "lumped" in what is referred to
as the co-op fee, when in actuality, it is a mortgage that has tax-deductible
interest and payment of principle which inures to the benefit of
the owner each month. It most certainly is NOT a fee, but many agents
don't even understand this, so how can they be expected to eexplain
it to their clients? A high cooperative fee may actually be less
than a condominium fee when these other items are figured into the
equation! Real estate taxes which are paid via the cooperative and
along with your fees are tax deductible.

Some
cooperatives have more rigid rules than condominiums, but they aren't
necessarily a negative. Sometimes these rules help prevent default
by an owner which can help protect the other shareholders. Cooperatives
also may have the ability to leverage costs or necessary renovations,
whereas a condominium would typically have an assessment that each
owner is required to fund on their own, which if one doesn't have
the necessary funds or is unable to afford to refinance to pay this
assessment, could put the owner in a difficult position.

The distinction isn't simple between cooperatives and condominiums,
and not even all cooperatives are created equal! Many vary greatly
in their own rules, fee structure, and operation. While day-to-day
life is not much different, it is important to understand the nuances
of the cooperative form of ownership so that you can make a fair
and informed comparison when weighing the "cooperative vs.
condominium" decision.

I develop
and have consulted to cooperatives since 1987 (and have lived in
one for almost as long!), so I'm happy to go over any questions
you may have concerning the cooperative form of ownership!